Taxpayer advocate’s concerns over private debt collection mount

By Elizabeth Newell Jochum

July 9, 2008

The national taxpayer advocate expressed new concerns about the Internal Revenue Service's private debt collection program in her most recent report.

For several years, Advocate Nina Olson has called for the repeal of the IRS' authority to use private agencies to collect delinquent taxes. Her prior complaints focused on the potential for violations of taxpayer rights and claims that the program is ineffective and lacks the necessary transparency.

But in a report to Congress released Tuesday Olson said that for the first time the IRS is giving private collection agencies too much credit for recouping debt payments. The IRS reported to Olson that private collection agencies brought in $31 million in gross revenue, or actual payments, in fiscal 2007. Olson said, however, that more than $6 million of that money was collected by the IRS, not through the private agencies' efforts.

According to Olson, this "noncommissionable revenue" was collected after being referred into the private collection program. But it was gathered using IRS tools or programs, such as the Federal Payment Levy Program, in which the agency seizes paychecks, retirement annuities or other benefits that delinquent taxpayers would normally receive from the government.

"[This] revenue is not attributable to [private collection agency] actions and would have been collected anyway…" Olson stated in her report. "We believe it is inappropriate to count these 'noncommissionable' payments in measuring the effectiveness of the [private debt collection] initiative, and they should not be included in revenue estimates for the program."

Jeff Trinca, vice president of Van Scoyoc Associates, a Washington law firm representing the collection agencies, said they get less credit for recovering these debts than they deserve. In many cases, he said, the IRS sends a letter telling delinquent taxpayers that their debt will be turned over to the collection agency. The collection agency must then wait 10 days before acting on the case.

"In a fair number of cases the taxpayer gets that letter, says 'Oh darn,' and pays the debt," Trinca said. "The program gets credit but the [debt collection] agency doesn't get paid."

Trinca said the IRS should pay the collection agencies for that debt, since the government is using their name to encourage citizens to pay up.

Olson also wrote that the IRS has extended the time frame for private collection agencies to resolve cases. Originally, the IRS planned to recall taxpayer accounts released to private agencies after a year, but officials extended that to 18 months.

The report argued this was ineffective, since private agencies collected 80 percent of the revenue they ultimately recovered within the first six months of receiving the cases. "It is unclear why the IRS would run the risk of leaving taxpayers' confidential tax information with outside contractors for extended periods of time when the contractors are taking no productive action on the cases," Olson said.

Trinca acknowledged that while he disagrees with Olson, she is simply doing her job. "She's an advocate," he said. "As a trained lawyer you take all the factoids and present them in such a way that they put your client in the best light, and her client, I guess, is the union."

The National Treasury Employees Union has been leading the fight to end the private collection program, insisting the recovery of delinquent taxes is an inherently governmental function. On Tuesday, NTEU President Colleen Kelley called Olson's latest report "damning evidence of the folly of continuing this costly and misguided program."